In LVI Group Investments, LLC v. NCM Group Holdings, LLC, the Court of Chancery of the State of Delaware looked to Delaware corporate law for demand futility pleading requirements in dismissing a derivative claim for breach of fiduciary duties against managers of a Delaware limited liability company (an “LLC”). In addition, the Court of Chancery analyzed the requirements for a member of an LLC sufficiently to plead a direct claim against managers of the LLC and analyzed the requirements for pleading a claim of fraud.
In In re Saba Software, Inc. Stockholder Litigation, C.A. No. 10697-VCS (Del. Ch. Mar. 31, 2017, revised Apr. 11, 2017), the Delaware Court of Chancery held that the board of Saba Software, Inc. could not invoke the business judgment rule under the Corwin doctrine in response to a fiduciary challenge arising from Saba’s acquisition by Vector Capital Management, L.P. According to the Court, plaintiff pled facts which supported a reasonable inference that the stockholder vote approving the acquisition was neither fully-informed nor uncoerced. The Court also denied defendants’ motion to dismiss plaintiff’s claims that the Saba board breached its duty of loyalty and engaged in acts of bad faith by rushing the sales process, refusing to consider alternatives to the merger and granting itself substantial equity awards.
In Chester County Employees’ Retirement Fund v. New Residential Investment Corp., No. 11058-VCMR (Del. Ch. Oct. 7, 2016), the Court of Chancery granted the motion to dismiss brought by defendants (the members of the board of directors of New Residential Corp. (“New Residential”), its manager, the manager’s owner, and its controlling stockholder: (i) for an improperly pled derivative claim (with leave to replead) brought against the defendants for breach of fiduciary duty by the plaintiff, a stockholder of New Residential, (ii) for plaintiff’s failure to sufficiently plead futility in demanding that the board of New Residential bring the derivative suit, and (iii) as to declaratory judgments sought by plaintiff with respect to the Defendants’ liability under certain documents as not being ripe (with leave to replead).
By Holly Hatfield and James Parks
A stockholder’s claims regarding a $35 million stock issuance to Freeport-McMoran CEO Richard Adkerson were dismissed. Governance changes within Freeport that were thought to have triggered an option in Adkerson’s employment contract that would have permitted him to quit and receive a $46 million severance package allowed the board to preempt that eventuality by issuing him $35 million in stock.
In Shaev v. Adkerson, C.A. No. 10436-VCN (Del. Ch. Oct. 5, 2015), Vice Chancellor Noble, writing for the Delaware Court of Chancery, granted defendant Freeport-McMoran’s (“Freeport” or the “Company”) motion to dismiss plaintiff Victoria Shaev’s (“Shaev” or “Plaintiff”) direct and derivative claims under Court of Chancery Rules 12(b)(6) and 23.1.
In a July 8, 2015 letter opinion, Vice Chancellor John W. Noble granted in part and denied in part the motion of Capella Holdings, Inc. and Capella Healthcare, Inc. (“Capella” or the “Company”) and five Capella directors (the “Director Defendants”) (collectively, “Defendants”) to dismiss breach of fiduciary duty and breach of contract claims asserted against them by James Thomas Anderson (“Anderson”), a founder and former director and officer of Capella, relating to a 2014 recapitalization of the Company.
Anderson’s counterclaims against Defendants all arise from a recapitalization of Capella which the Director Defendants approved in April 2014. Anderson voted against the recapitalization, which decreased Anderson’s ownership percentage in the Company, as well as that of the minority shareholders, and increased the ownership percentage of affiliates of GTCR Golder Rauner II LLC (“GTCR”), which, upon Capella’s formation, made an equity investment of approximately $206 million in the Company.